Dynamic contractual incentives in the face of a Samaritans’s dilemma

Josepa Miquel-Florensa ()

Theory and Decision, 2013, vol. 74, issue 1, 166 pages

Abstract: We design a project funding contract that provides optimal incentives to agents, in a setting where both principal and agent enjoy the benefits of the project in a non-rival form once completed but may differ in their valuation. To do so, we study optimal incentive payments in a dynamic principal-agent framework in which the principal cannot observe the agent’s investment, but only completed projects, and faces a Samaritan’s Dilemma: he cannot commit to terminate the contract before completion of the project. The agent decides whether to undertake a (discrete) investment or consume all received funds. We find that the optimal contract is stationary, and that either transfers equal to investment cost are incentive compatible or the cost of the contract is decreasing with the agent’s valuation of the projects. Given the intrinsic valuation of the project by the agent, he is always better off signing the contract in contraposition with the general moral hazard result. Copyright Springer Science+Business Media New York 2013

Keywords: Dynamic contracts; Moral hazard; Samaritan dilemma; D82; D86 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11238-012-9327-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:74:y:2013:i:1:p:151-166

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/11238/PS2

DOI: 10.1007/s11238-012-9327-2

Access Statistics for this article

Theory and Decision is currently edited by Mohammed Abdellaoui

More articles in Theory and Decision from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().